Chrysler Capital notified dealers on Sept. 26 that it is reducing its cap on dealer participation from two points to 1.75 points. Four days later, the company behind Chrysler Capital, Santander, said it is also reducing the cap to 1.75 points.
The change, which took effect on Oct. 1, comes more than two weeks after the Consumer Financial Protection Bureau (CFPB) proposed to oversee larger nonbank auto finance sources for the first time at the federal level. And both Chrysler Capital and Santander would fit the bill, ranking No. 9 and 10 on Experian Automotive’s second quarter list of top auto finance sources by market share.
Obtained by F&I and Showroom, the two dealer notices, however, make no mention of the CFPB. “Chrysler Capital watches current market conditions very carefully and we feel this change puts us in line with many other lenders who have chosen to limit dealer participation below two points,” the finance source’s notice stated.
Santander stated in its notice: "This is a basic change is not unlike any modification that SAF makes to pricing and policies regarding any of our programs."
A spokesperson with Santander declined to comment, while Chrysler Capital did not respond to requests for comment.
In its recently released Supervisory Highlights report, which details auto-lending discrimination the CFPB has uncovered in the last two years, the bureau stated that its activities suggest that finance sources could limit pricing disparities and fair lending risks by capping dealer markups at 100 basis points.
“An institution that implements significant limits on discretionary pricing may find that it can significantly reduce certain compliance management activities, such as dealer-specific monitoring and discipline, to which the institution would otherwise need to devote significant attention and resources,” the bureau stated in its report, in part.
The two finance sources, however, didn’t go that far. And according to the National Automobile Dealers Association (NADA), the average dealer participation rate falls below the finance sources' reduced caps and the bureau’s suggested cap.
In March 2013, the CFPB issued guidance regarding a dealer’s ability to discount interest rates offered to consumers who finance their vehicle purchases. The CFPB claimed that negotiated interest rates between dealers and their customers create a significant risk of unintentional “disparate impact” discrimination. But according to the NADA, there are a variety of legitimate business-related factors that can affect finance rates, such as beating a competing rate.
This past January, the NADA released its Fair Credit Compliance Policy & Program based on a mitigation model developed in 2007 by the Department of Justice. The program was offered as a way to address the bureau’s concerns and requirements detailed in its March 2013 bulletin.
“The NADA’s Fair Credit Compliance Policy & Program remains a very viable option for dealers to address potential fair credit risks,” read a statement the NADA issued to F&I and Showroom. “The NADA has put forth a solution. It’s a voluntary program for dealers to address potential risks in indirect auto lending while preserving the robust competition for car buying in the auto finance marketplace.”